Charles H. Brown Jr., the former head of the Maryland Division of Savings and Loan Associations, "automatically" approved risky S&L loans during his tenure and failed to exercise his "substantial" police powers that could have helped prevent the savings and loan industry's collapse last year, according to a special report scheduled to be given to the General Assembly on Thursday.
An eight-page section of the report by Wilbur D. Preston Jr., a Baltimore lawyer who spent the last six months investigating the origins of Maryland's savings and loan crisis, was obtained today by The Washington Post.
The excerpt focuses on the division as the chief regulator of savings and loans and is a fraction of the 450-page report. The excerpt also accuses the Maryland Savings-Share Insurance Corp. (MSSIC), the industry group that insured 102 savings and loans, of exercising virtually no oversight on its member associations.
Brown could not be reached for comment on the report.
Legislators and state government officials familiar with Preston's findings said today the report also will criticize the offices of Attorney General Stephen H. Sachs and Gov. Harry Hughes, as well as the General Assembly, for their roles in the growth years of the savings and loan industry.
Preston's report says the assistant attorney general assigned to the S&L division and Hughes' staff should have been more alert to industry problems as they developed in the early 1980s, these sources said.
"It names all the names," said one state official who reviewed the Preston report this week.
The report, which was locked up in a state office building before its release, was the talk of the State House as the General Assembly opened its 202nd annual session. As the legislature convened, about 200 angry depositors rallied outside and listened to consumer advocate Ralph Nader urge that all individuals responsible for the state's savings woes be prosecuted.
"None of the culprits should escape being brought to the bar of justice," Nader said. "If they are all put in one prison, it would not be a small prison."
The crisis in Maryland's state-chartered savings and loans stemmed in part from mismanagement by top thrift officials, and began last May published reports of changes in management at Old Court Savings & Loan in Baltimore. As depositor runs started at Old Court and other thrifts, Hughes froze accounts and the legislature created the office of special investigative counsel. Preston, a highly respected lawyer, was appointed counsel by Hughes and -- armed with subpoena power -- began his investigation last July.
Seven hundred copies of his massive report, enclosed in dove-gray covers and aptly entitled "The Special Counsel's Investigation of the Savings and Loan Crisis," will be available to the public starting at noon Thursday.
Brown's savings and loan division was supposed to monitor the kinds of investments made by savings associations, a task also performed by MSSIC. The public and private regulatory agencies "operated as if the information of each also belonged to the other" but did not respond quickly or aggressively to curtail problems they discovered, according to Preston's report.
Brown had the power to disapprove insider loans that many associations made to their own officers, a practice generally considered risky by conservative lenders.
In his report, Preston quoted sworn testimony from Brown Oct. 30 in which the division director said he "believed that if the [insider] loan was approved by the directors of an association and supported by an appraisal, he could not arbitrarily disapprove it."
"In fact, he automatically approved such loans," the report said of Brown.
The report also said Brown "had considerable 'jawboning' power by virtue of threatening to use his powers . . . . Despite acknowledging the existence of these powers, Brown seldom used them."
The report also criticized Brown for not exercising the police powers available to him under state law, powers that "although lacking in some respects, were substantial," the report said.
For instance, Brown "could issue an order to compel a savings and loan association to comply with its charter, bylaws, any applicable law, or any rule or regulation" of the Board of Savings and Loan Associations Commissioners, another state regulatory agency, said the report.
"If properly exercised, such orders would be tantamout to cease and desist orders," the report said. It was not until July 1, 1985 -- well after the crisis broke -- that Brown was granted specific cease-and-desist powers by the General Assembly.